Michael Robert McDonald - Clean Harbors, Inc. Alan S. McKim - Clean Harbors, Inc. Michael L. Battles - Clean Harbors, Inc. James M. Rutledge - Clean Harbors, Inc..

Al Kaschalk - Wedbush Securities, Inc. Joe G. Box - KeyBanc Capital Markets, Inc. David J. Manthey - Robert W. Baird & Co., Inc. (Broker) Charles Edgerton Redding - BB&T Capital Markets Sean K. F. Hannan - Needham & Co. LLC Barbara Noverini - Morningstar, Inc. (Research).

Greetings, and welcome to the Clean Harbors Fourth Quarter 2015 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. I would now like to turn the conference over to your host, Mr. Michael McDonald, General Counsel. Thank you, Mr. McDonald. You may begin..

Thank you, Robin. Good morning, everyone. Thank you for joining us today. On the call with me are Chairman and Chief Executive Officer, Alan S. McKim; Vice Chairman and President, Jim Rutledge; EVP and Chief Financial Officer, Mike Battles, and our SVP of Investor Relations, Jim Buckley.

The slides for today's call are posted on the Investor Relations section of our website. We invite you to follow along as we go through the presentation. Matters we are discussing today that are not historical facts are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Participants are cautioned not to place undue reliance on these statements, which reflect management's opinions only as of this date, February 24, 2016. Information on the potential factors and risks that could affect the company's actual results of operations is included in our filings with the SEC.

The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's press release or this morning's call, other than through SEC filings that will be made concerning this reporting period. In addition, today's discussion will include references to non-GAAP measures.

Clean Harbors believes that such information provides an additional measurement and consistent historical comparison of its performance.

A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is available in today's news release, which can be found on our website, cleanharbors.com as well as in the Appendix of today's presentation. And now, I'd like to turn the call over to our CEO, Alan McKim.

Alan?.

Thanks, Michael, and good morning, everyone. Thank you for joining us. Beginning on slide three, we performed reasonably well in Q4, particularly in light of the considerable external headwinds affecting our end markets. Weakness in the energy industry accelerated and U.S.

industrial production fell at an annual rate of 3.4% as firms scale back to spending plans. Against that backdrop, we controlled what was in our control, pursuing opportunities to capture greater efficiencies and lower our costs. The result was Q4 adjusted EBITDA of $97.2 million, led by another strong performance for Safety-Kleen Environmental.

Before moving on to the segments, I want to comment briefly on 2015 as a whole. In the face of numerous challenges this year, we still generated more than $500 million of adjusted EBITDA for the third consecutive year, which really is a credit to the strength of our people and the resilience of our business model.

In addition, our team delivered our best safety year in our history, and I just wanted to publicly recognize them for the incredible job they did this past year at protecting our workforce, our customers and the communities we serve. Turning to the segments in detail, starting on slide four, Tech Services.

Tech Services revenue and profitability were down from a year ago due to the same factors that affected the segment throughout much of 2015. Our incineration utilization was 89%, thanks to healthy drum volumes from our base business and from Safety-Kleen. However, our landfill volumes were less than half of what they were a year ago.

Project deferrals on some potentially high margin waste streams, lower drill cuttings and reduced industrial volumes all contributed to the year-over-year decrease in the quarter. Within Tech Services, we recycle a sizeable amount of various waste streams from customers.

These include solvent, copper, catalyst, scrap metal, and transformer oils, among many other things. The value of those recycled products has been considerably down throughout this year, which continue to impact us in the Q4. In addition, lower crude prices and a strong U.S.

dollar adversely affected waste streams from a number of chemical and industrial customers. Turning to Industrial and Field Services on slide five. In Q4, our base business was relatively stable, but customers were extremely reluctant to spend on projects in this climate, as evidenced by a 12% decrease in revenue. Our U.S.

Industrial team did a good job growing its business in Q4, mainly through turnaround activity. Overall industrial activity across all of Canada, particularly the oil sands, was down significantly year-over-year. And that lower activity was compounded by the effect of currency.

Profit in the segment was down more than 40% from Q4 a year ago, when we had more projects and a better mix of high margin work. Fleet utilization was just 76%, which was down from a year ago. Moving to slide six. The drop in outside revenue in Kleen Performance Products reflected the continuing decline in base oil pricing.

Posted Group 2 pricing fell $0.50 over the course of 2015, and after two more reductions here Q1, including $0.15 last week, today's price stands at only $1.70 a gallon. On the day we closed the Safety-Kleen acquisition, posted base oil prices were more than $2 above today's level.

Direct revenue was essentially flat in Q4, demonstrating our efforts to manage the spread in this business. In this weak crude oil environment, managing our charge-for-oil and stop fees will be critical for us in 2016 to effectively counter the persistent base oil pricing pressure.

In December, Safety-Kleen introduced an $80 stop-fee for waste oil producers. We've been very successful rolling out that program to customers and are planning to adjust those fees higher given the $0.15 decrease that Motiva (6:26) announced this past week.

The team continues to attack the front end of our expense structure by lowering our transportation and our collection costs. Rounding out the Q4 discussion of Kleen Performance Products, blended sales were at 33% in the quarter, which was consistent with Q3.

Turning to slide seven, similar to what we saw in Q2 and Q3, outside revenue in Safety-Kleen Environmental Services was up slightly, while direct revenue was down 15%. This was entirely due to our reduction in oil collection cost. Profitability rose 9%, reflecting a better business mix in the quarter and the benefit of cost reductions.

Parts washer services were up for the sixth consecutive quarter. In fact, we finished 2015 with more than 990,000 parts washer services, a credit to the fantastic job our team has done in that business. And we certainly look forward to passing the 1 million services mark here in 2016, which will be an impressive milestone for us.

In Q4, we collected 49 million gallons of waste oil. We reduced our average PFO cost by $0.05 from Q3 and are now generating a positive contribution from waste oil collection. Q4 was the first full quarter where we saw the effect of the charge-for-oil and stop fees that we announced in late August.

Looking at our PFO cost on an annual basis, we lowered our average PFO cost in 2015 by more than $0.75 a gallon from 2014. Turning to slide eight, Lodging Services saw a revenue decrease of 43% from a year ago, and profitability declined even more, as we continue to adjust to the current energy market, again particularly in the oil sands region.

However, both our revenue and adjusted EBITDA improved sequentially from Q3, due to an improvement in occupancy and an increase in our manufacturing business. Occupancy rates at our primary fixed lodges rose to 27% in Q4 from just 19% in the third quarter.

The manufacturing team won a significant contract with a non-traditional customer that enabled us to ramp up activity at our facility. The contract which extends well into this year should assist our entry into other modular build markets.

We continue to take costs out of lodging and evaluate opportunities to either close certain facilities or relocate them to areas of opportunity such as British Columbia. Turning to Oil and Gas Field Services on slide nine, the 51% drop in revenue, while not surprising given the market conditions, was still very disappointing.

One of the primary factors affecting our business is rig count. And if you look at Q4 2014, the combined peak rig count in the U.S. and Canada was more than 2,300 active rigs. In the fourth quarter of 2015, that number was less than 1,000 active rigs.

So our opportunities were less than half of the prior year, and as a result, our average rig service declined by more than 40% to 102 rigs. Average utilization of our key equipment in Q4 was 38%, down significantly from a year ago and flat with Q3. Looking at our corporate initiatives on slide 10.

Let me start with $100 million cost reduction program that we announced in November. At that time, we realized that load (10:14) crude prices would be with us for some time, and that industrial production was slowing. So we acted swiftly and aggressively. We immediately began lowering our cost structure in an effort to reach our $100 million target.

We still expect to achieve a minimum of $50 million in cost takeouts this year, with the intention of doing more than that. We fully expect to enter 2017 with over $100 million reduction and run rate reached. These actions will center on reductions in our head count, benefits and G&A as well as office and real estate consolidation.

Our plan is to manage down expenses, certainly without limiting our ability to grow and meet customers' needs. To do so, we must maintain a strong sales organization. Our aim is to revitalize organic growth at Clean Harbors, which has been struggling in recent years.

We've just completed a comprehensive internal effort to more closely align our sales force with our operating units and to rebalance account assignments to increase customer interactions.

As part of that effort, we added 60 incremental positions to our sales structure, in an effort to fully executing more regionally focused sales strategy with area business development personnel.

In addition, we revised incentive plans this year to reinvigorate our organic growth with an emphasis on new customer wins and cross-selling across all our business units. Turning to the planned carve-out of our energy business on slide 11.

During the fourth quarter and early this year, we continued with many of the steps needed to transition the Oil and Gas Field Services and Lodging segments into a standalone public company, including the creation of a separate legal entity.

We prepared financial statements and have made some internal structural changes to prepare for an IPO, and looking realistically at the state of the energy sector, we are looking at potential alternatives in addition to the IPO. However, the timing of any transaction will depend on market conditions and also remain subject to our board's approval.

Moving to slide 12. We believe we have an effective capital allocation strategy. We continue to invest in our business, with a bias towards meaningful long-term growth opportunities, such as the El Dorado incinerator. We regularly evaluate businesses that can be purchased at attractive valuations, such as our newly acquired Nevada re-refinery.

As Mike will discuss, although we did not buyback a significant amount of stock in Q4, share repurchases remain an important element in our overall strategy. Thus far, we've completed $178 million of our $300 million repurchase program, buying back above 3.4 million shares.

We intend to continue that program based on our capital needs and other factors. Moving briefly to our outlook, starting on slide 13. We have a range of initiatives to revitalize organic growth in 2016. Within Tech Services, we're focused on completion of the new incinerator in Arkansas, which remains on budget and on schedule.

It will significantly expand our capabilities and we're excited about the opportunity to bring that capacity to the market. Testing will begin in the coming months with commercial startup projected late this year. Tech also continues to focus on growing its drum and bulk volumes, which support our incinerators.

On the landfill side, we see a pipeline of diverse projects though timing is uncertain given the current spending environment. Within Industrial and Field, we are working with customers now to address their 2016 turnaround needs, including a lot of work pushed out from last year.

The collaboration between our Field Services and Safety-Kleen businesses progressing nicely, with co-locations of branches. And we also expect that our efforts to cross-sell services to the Thermo Fluids group will gather momentum in 2016.

Within Kleen Performance Products, in the coming months, the Nevada facility we purchased from Vertex in January will be folded into our re-refinery network. This plant's proximity to California is ideal for us, because Clean Harbors and Safety-Kleen do a lot of business there, and the state is really ranked as one of the world's greenest economies.

The Nevada facility has a significant amount of tankage as well as rail access, making the plant a nice option as we look to grow our blended capabilities out West. We're intent in increasing our blended sales in 2016 through a closed-loop strategy, whereby we sell our products back to our customers.

We have tested that strategy in a Canadian pilot program and that has been very successful. And we plan to expand that program into the U.S. market this year. Safety-Kleen Environmental's plan is to carry its success in 2015 to this year.

That means continued collaboration with Field, Industrial and Tech Services group, as well as deeper penetration of the TFI customer base. On the collection side, the focus is on the ongoing implementation of our stop fees program, as we help customers manage their waste oil.

We will continue to drive down our total collection costs and maintain sufficient volumes to run our plants in light of the deterioration in the crude oil markets. Slide 14 highlights the outlook for our Lodging and Oil and Gas segments.

Essentially, in both businesses, we remain disciplined and are cutting costs, taking market share, seeking ways to apply our underutilized assets, and pursuing opportunities in non-traditional markets or geographic regions. So with that, let me turn it over to our CFO, Mike Battles.

As most of you know, we named Mike our CFO in January after more than two years as our Chief Accounting Officer working under Jim Rutledge. Mike is a strategic, thoughtful leader, who has the vision and skill set to lead our finance organization, as we execute our growth strategy.

After 10 successful years as our CFO, Jim is going to continue to focus on more of the strategic projects as our President and Vice Chairman of the board.

Mike?.

Thank you, Alan, and good morning, everyone. Let me begin by covering direct revenue by segment on slide 16. Tech Services was our largest contributor at 40% of revenue in Q4, followed by SK Environmental at 21% and Industrial and Field Services at 20%.

These percentages are slightly higher than what you might expect, since Q4 is one of our seasonally weaker quarters for Environmental. But given the weakness in the energy markets, Oil and Gas Field Services and Lodging Services did not see their customary year-end ramp, and combined, only accounted for 8% of our total Q4 revenue.

Turning to the income statement on slide 17, gross profit for the fourth quarter declined to $190.1 million, which translates to a gross margin of 26.7%. This is 100-basis point below Q4 2014 when we saw a better mix of high margin business particularly environmental waste projects.

SG&A expenses declined in dollars at $92.9 million in Q4, equating to 13% of revenue. This is down about $10.6 million from the fourth quarter of 2014, but up about 70 basis points due to the lower revenue in the 2015 period.

Looking at SG&A expenses for the full year, we not only lowered our absolute dollars by more than $23 million, we reduced our SG&A percentage from 12.9% to 12.6%.

This reflects cost reduction efforts and lower incentive compensation expense in 2015, savings that more than offset the labor and administrative costs associated with our emergency response business in the second and third quarters.

For the full year 2016, we look for SG&A expenses to be approximately flat in terms of absolute dollars, as we expect our cost saving programs to be offset by sales related investments that Alan highlighted. Depreciation and amortization for the fourth quarter was down about $1.6 million to $69 million.

The decrease reflects lower amortization in Q4 in our landfill business, partially offset by Thermo Fluids. For the full year, depreciation and amortization was down $1.9 million to $274.2 million. We expect the full year 2000 (sic) [2016] (19:00) D&A of approximately $265 million to $275 million.

Income from operations in Q4 was $25.5 million, down from more than double that in Q4 a year ago, primarily as a result of our lower revenue and business mix. Fourth quarter 2015 adjusted EBITDA was $97.2 million, just below the range we provided in early November.

Included is $4.7 million in severance and integration costs due to our ongoing cost reduction initiatives, particularly in our energy related businesses in Q4. Offsetting those severance and integration cost in Q4 was an environmental benefit of $9.1 million as we successfully remediated and eliminated some significant liabilities in the quarter.

For the full year, our adjusted EBITDA was down $17.7 million to $504.2 million. On a percentage basis, however, we increased our adjusted EBITDA margin slightly to 15.4% for the year. Our effective tax rate for Q4 was at normally high due to losses we experienced in Canada this year, as well as increases in provincial tax rates in Canada.

Our effective tax rate for the full year excluding the Q2 goodwill impairment charge was approximately 48%. Given our current mix of profitability between the U.S. and Canada, we expect our effective tax rate to be in the 42% to 43% range for the full year of 2016. Turning to slide 18, our balance sheet remains solid.

Cash and cash equivalents at year end increased slightly from Q3 to $184.7 million. DSO for the quarter remained at 72 days. We continue to target DSO in the mid to high 60-day range, as we initiated some programs in 2015 around collections that should benefit us in 2016.

Our environmental liabilities in Q4 were $188.2 million, which is down $17.6 million for the full year, as we continue to steadily address our obligations at a number of sites to reduce our overall liability. Q4 CapEx, net of disposals, was $64.7 million, which is above the $56.5 million we spent in Q4 last year.

However, this quarter includes $17.6 million invested in the construction of the El Dorado incinerator, while Q4 of 2014 had only $5.1 million of incinerator capital. Excluding that spend from both periods, we decreased our CapEx spend by about 8% from a year ago.

For the full year, CapEx, net of disposals, was $251 million just above 2014, but this year included nearly $62 million in the new incinerator versus just about $9 million in 2014.

Looking at 2016, we're targeting CapEx, net of disposals, of about $200 million, excluding El Dorado, which we expect to add approximately $45 million to $50 million this year. Cash flow from operations was $86.8 million in Q4, compared with $101.3 million a year ago.

For the full year, cash flows from ops was $396.4 million, a substantive increase from the $297.4 million we reported in 2014. Looking ahead to 2016, we expect to achieve cash flow from operations of about $350 million to $400 million and free cash flow to be in the range of $150 million to $200 million for the year.

As Alan mentioned, stock buyback activity was limited in Q4. We repurchased $4.2 million of stock in Q4, largely due to the cash considerations of our business, including potential acquisitions. For the full year, we repurchased $73.3 million on top of the $104.3 million we bought back in 2014, when we initiated the program.

Moving to guidance on slide 19, based on our 2015 performance, our 2016 budgeting process and where we see markets today, we expect adjusted EBITDA for 2016 in the range of $430 million to $490 million.

I should point out that this guidance is after the effect of severance and integration expenses we expect to incur this year, based on our current cost reduction initiatives.

Looking at the full year, 2016 adjusted EBITDA guidance from a segment perspective, we expect Tech Services and SK Environmental to each generate low single-digit growth in 2016.

Within our Industrial and Field Service segment, we expect a substantial decline in year-over-year adjusted EBITDA due to the unfavorable comparisons in 2015 where we had more than a $70 million contribution for major emergency response events.

Excluding the ER contribution, we anticipate that that segment will be essentially flat in 2016, given the current market environment for energy and industrial customers.

For Kleen Performance Products, despite the difficult base oil environment, we expect to grow our profitability in 2016 by as much as 50%, as we manage the spread to charge-for-oil and stop fees, as well as more efficient transportation costs.

Together, we expect Lodging and Oil and Gas segments, primarily due to cost-cutting, to grow their adjusted EBITDA on a combined basis by as much as 50% from the low totals we had in 2015, with the vast majority of that growth coming from Lodging.

Given the volatility in our markets, and our focus on driving the annual and long-term performance of the business, we have decided to cease providing specific quarterly guidance. That said, we obviously want to be sure our shareholders understand the current seasonality of our business.

That seasonality will reflect the headwinds that Alan noted earlier, as well as the lackluster winter drilling program in Canada. Also, we anticipate approximately $6 million to $9 million of severance and integration expenses in Q1. Given all those factors, we'd expect that our adjusted EBITDA will be down more than 15% from Q1 a year ago.

The comprehensive initiatives we have underway will significantly increase profitability, as we move into the seasonally stronger quarters in 2016, and our cost saving programs more fully take effect. With that, Rob, please open up the call for questions..

Thank you. At this time, we'll be conducting the question-and-answer session. Thank you. Our first question comes from the line of Al Kaschalk with Wedbush. Please go ahead with your questions..

Morning, guys..

Good morning, Al..

Good morning..

I want to just focus really on a little bit more of a macro commentary in helping maybe address a couple of questions that we've been getting here.

If we take a step back, Alan, and look at the overall business and your guidance in terms of what you provided for 2016 and given the macro backdrops that you faced here, is there a way to help us better appreciate, whether it's by segment or maybe overall, if you look at what's base business versus project oriented business to help us try to get a feel of where we're at in terms of the underlying trends? Because what I'm hearing and in your commentary and prepared remarks, there seems to be a little bit of the base business that has deteriorated because of the industrial production economic data, but yet, when you look at the guidance (26:38), you're down 15% at least almost each quarter based on the midpoint of that EBITDA.

So I don't know if there's a way you can help us – give us comfort or provide some commentary around your thoughts on those two components of the overall business..

Sure. Well, I think as we look at the various waste streams that we handle into our facilities, we certainly see an increasing in the drum volumes that we're collecting, our bulk business, which is -- these are both our landfills or water treatment plants and our incinerations has been relatively steady.

With some of our large chemical companies, customers we had seen some reductions in some of the lean water streams and some of the fuel streams that they had generated, and I think that's probably a reflection of some of the slowdown that maybe they had in their business.

As it relates to the project side of our work, I mean certainly a lot of what we do here is based on generator cycles, where the customer has 30 days, 60 days, 90 days to manufacture what they manufacture, generate waste, and then we collect that waste. And we service hundreds of thousands of accounts.

And so that in itself is our base business, but the quantity and sometimes the shipment frequency of that changes based on their business. And so, I would say that in some parts of our business, we've seen the services stretch out to longer durations. So we might have a four-week service moving to an eight-week service for example.

Certainly, as we have started charging for our stop fees, and that's something that we'll continue to do in Safety-Kleen, customers looking to extend out the number of weeks that go by before we perform the service, just as a means of maximizing how much we do for them when we perform that service.

So there's a lot of probably color I could give you, Al, across all parts of our business, but I guess, I would characterize is that our business is relatively steady, but for those events and projects that tend to generate large volumes of waste into our landfills, large remediation projects, that is really where we saw a slowdown in what you would consider our core business.

And as we look at the activities, particularly around oil and gas, many of our largest accounts that drove volumes into our Alberta landfill, our North Dakota landfill, our California landfill, we saw a significant tail-off in those volumes and those, to some extent, were base volumes for us before, but as those rigs laid down and as those activities ceased, we saw a real decline in volumes and I think many of our competitors probably will speak to that as well.

Overall, though, I would say that our activity levels, our drum volumes, our Field Service business, our quote level, our – if we look at our pipeline, I would say that there is a lot of strength throughout many parts of our business, say, the Oil and Gas Field Services and Lodging business..

Very helpful..

Is that helpful, Al?.

No, it is. That's great. And then, very happy to see the guidance on the cash flow from ops at the $350 million, $400 million. I think that was the numbers Mike rattled off there.

Could you – just as a follow up to that, the closed-loop system, good progress on the trial program in Canada, the activity you've undertaken with the acquisition out on the West Coast, are those similar? In other words, we would see more likely customer adoption out on that area of the geography? Or what do you need to invest to get that to the level or trend towards the level that you're looking for? Thank you..

We're very optimistic about working with partners, some of our buyback distributors as well as our own direct capabilities to provide that service to our customers, particularly in this kind of a market where we're already going out to these customers, charging them a stop fee, charging them for delivery, been able to add other products or services to the same truck, so to speak is really, I think, compelling to many, many of our customers.

I just wanted to add one another thing too that, when you look at Safety-Kleen in general, as we've talked about this year, it's been one of the more profitable and growth stories for us. We really think we can continue to grow that business substantially.

Whether we can grow and double it over the next five-plus years or not will be seen, but the key performance indicators that we see the 990,000 services on parts washers, the increase in oil filter bins that we're placing out at our customers' sites, the increase in the do-it-yourself tanks that we're installing, the increase in roll-off frames and boxes that we see at record levels right now, all of the key indicators in our core Safety-Kleen business are really pointing in a really solid direction.

So I think as we think about rolling out our direct product sale, it's rolling out to what I think has become a very successful business model for us and we're really excited with where we are after three years now of owning Safety-Kleen how we can now leverage that network and leverage their scale and grow this blended oil business.

Okay?.

Very good. Good luck..

Thank you, Al..

Thank you. Our next question is from the line of Joe Box of KeyBanc Capital Markets. Please go ahead with your questions..

Hey, good morning, guys..

Good morning..

Good morning, Joe..

So just relative to the new incinerator, how should we think about the revenue opportunity and the ramp there? Is it reasonable to say, we're adding 70,000 tons per year, it's a 15% bump to total processing capacity and it should flow through at an average price per ton or would there be any major mixed differences or pricing differences we need to know about?.

I think because this plant will have a number of key features to feed different types of waste streams and handle more difficult waste streams, because this will meet the new MAC2 standards. Again, this is the first plant built in over 20 years in the country. I think this is – you're going to see a higher price per pound going through this plant.

And so that 70,000 tons is a good number, Joe.

I think also some of the recent announcements we're hearing with the chemical industry consolidating and then splitting up and forming different businesses, that – all of that is going to provide opportunity for the captives to continue to look to outsource, because many of those sites could become stranded.

And those captive sites will become stranded, because these ownership changes really then will restrict what waste can be handled at what plant. So we're talking to a lot of our customers. We have a solid backlog. I think we have about $30 million typically in deferred. We've got a lot of waste.

We missed out, quite frankly, on a lot of some volumes last year, because we simply were booked and didn't have the capacity for some of the waste streams. Now granted, I mentioned lean waters were a little light last year, but overall, we continue to see the demand for our incineration could be very strong.

And as we continue to roll out more collections across Safety-Kleen, we're going to get more drum waste from that collection network as well..

Got it. So couple of tailwinds to demand.

How should that ultimately impact the ramp of revenues in this new incinerators? Is it a one-year to two-year ramp or is it shorter than that?.

I'd like to think it's going to be shorter, I mean where the site is already approved, the Arkansas site that already has two incinerators is pretty much approved by every major customer.

So getting the third plant up and running, mechanically, we're essentially built now completing up the wiring, and certainly, some of the start-up phases, but we'll be turning on that plant in September, October, November timeframe.

And I would like to think that subject to any start-up issues with any kind of brand new plant that you may incur will be looking ready to go – ramp-up quite quickly with that plant..

Hey, Joe, this is Mike. And we've put the budget together. We didn't assume any revenue in 2015 for the new incinerator. We're hopeful we get something kind of before the end of the year.

That is – the time I would suggest that, obviously, there's issues in the new plant, it could delay a few things, but we feel confident that there was revenue in 2006 for the new incinerator although we have put nothing in the budget at this time..

Got it. That's helpful. And then Mike, can you maybe just help me out the moving pieces of SG&A. I mean you talked about $50 million benefit coming from the restructuring, yet, you're making some investment in SG&A and that's going to result in flat dollars.

I think you called out 60 incremental salesmen, but I'm curious what else is going to be in that SG&A investment to basically erase the savings for 2016?.

Yeah. So when you think of the $650 million of cost savings, it's not all SG&A, there is some direct head count, and other direct benefits that affected direct head count kind of above SG&A. But that being said, we are taking aggressive cost actions in SG&A and other types of discretionary spend.

The answer to that, Joe, is really that the bonus we didn't receive given our performance in 2015, very little bonus opportunity for the organization. And as we look to 2016, we're hopeful that that bonus will be in there. So from a quote standpoint, we put that into the budget for 2016.

Obviously, if we run short of that, that's going to have an upside, unfortunately, to SG&A as we work through the year, so that's really the delta..

Okay, got it. I appreciate it. Thanks guys..

Okay..

Our next question is coming from the line of David Manthey with Robert W. Baird. Please go ahead with your question..

Hey guys. Good morning..

Good morning..

As it relates to the incinerators, could you talk about what your average dollars per pound is approximately today? And then a similar question, I know you mentioned that the new incinerator should get a premium to your average, could you talk about what type of premium that is? And then Alan, as you were mentioning Safety-Kleen drum waste, how does that compare to the average? Is that above or below average dollars per pound?.

We're roughly at about $0.39 on average right now per pound. Some of the ozone depleting chemicals and some of the difficult direct burn streams certainly are well north of $1 a pound. So clearly, we've been restricted from taking on as much as been available, quite frankly, in the market, and our competition has as well.

There is really a – I believe there's a backlog of that material, so it tends to be more in those types of materials, as well as potentially bringing those in from other parts of the world, as everybody looks to reduce those ozone depleting chemicals.

The Safety-Kleen containerized waste service business, which when we acquired it was about $250 million or so business.

Their price, on a per drum basis, tends to be higher, because there're more onesie-twosie customers again several hundred thousand accounts, smaller quantity, a little bit more costly to profile and collect because of the small quantity.

So you tend to get a higher price for those materials because of that, but by tying it into our whole logistics network, we're pretty efficient at moving those small quantity waste drums around now. So we tend to see that end up at our incinerators at a higher price per pound..

Okay, thank you.

And on the pay-for-oil, charge-for-oil collection, you said that pay-for-oil was down $0.75 in 2015 and with the adjustments that you've made since then or this year, I guess, and the stop fees you've implemented, when you think about 2016, I know it's a moving target, but so far in 2016, if you talk about sort of how you've moved your oil collection fees or costs relative to that $0.75.

And then, again, I know it's a moving target, but if Group 2 stays relatively constant, I mean is it impossible to think you could earn $15 million in EBITDA on a quarterly basis, at some point in 2016, based on your charge-for-oil program and the stop fees that you've implemented?.

Yeah, Mike, you want to comment on that?.

Yeah, sure. I mean that is the plan actually to kind of get to that level and that's through managing the spread, as we talked about during the call.

And so, we feel confident that we've gone from $0.75 of pay-for-oil to – from PFO to ZFO now to CFO, and so that's the model and we feel like we feel confident that, as we get into 2016, that process has been kind of worked through our organization, worked through our customers' organizations, and now, I think that we feel like we can make good progress going forward..

Yeah, I mean I think when you look back when crude was at the level it's at, and we look back to the 1994 timeframe, and even if you look back into 2005, this is not untypical for customers to be paying for the service. This is in many states, a hazardous waste, it's a service that is needed.

We certainly have been working with our customers, as they can pass along these charges to their customers, because this is a hazardous waste management service.

And like many other hazardous waste, we recycle and sell that product, and we need to manage our spread, whether it's taking catalysts out of a reactor or refinery, or taking copper out of transformer for a utility and managing the oil and the PCB oil out of that. So that's all part of our spread management.

And I think we have done a very, very good job of managing the spread in that business, in light of how quickly both crude as well as base oil has deteriorated. And our customers, and I met with a lot of them myself, I think our customers are cooperating with us, realize the situation we're in and we'll continue to work with them..

Makes sense. All right. Thanks very much..

Yeah..

Our next question is from the line of Charles Redding with BB&T Capital Markets. Please go ahead with your question..

Hi. Good morning, gentlemen. Thanks for taking my question..

Good morning..

Good morning..

I was wondering if you could just talk a little further on the project pipeline for land-filling, how is this shaping up, and maybe how are their specific – or are there specific end markets where you're seeing pockets of strength here relative to the pressure in E&P?.

I think there are opportunities.

We have a number of folks that are working with a number of E&C firms and they, in turn, are working with our customers, and like Clean Harbors that has a remediation reserve of $180 million, let's say, that's on our books that kind of is dealing with long-term liabilities and projects that need to get done like us, every single one of our major customers, typically, has one of those reserves and has a discontinued group or a remediation group that is managing those.

And so, we're in close, obviously, conversation with direct customers as well as their E&C firms. And I think we have a very good pipeline. What tends to happen, as we try to do and our customers try to do, is manage cash flow, and try to delay in some cases, when they can.

And last year was one of those years where we spent quite a bit of money on one project alone, I think was about $6.5 million..

Right..

So we really know that side of the business. I think we're tracking those projects very closely, but I think as we said in our opening script here, the timing of that is what really is always quite elusive for us..

Sure, sure.

And then, obviously, on Lodging, can you help us understand a little better sort of the non-traditional manufacturing opportunities that you might see?.

We have a wonderful facility south of Calgary that was building the drill camps and the lodges, particularly built the Ruth Lake facility that we put in place a couple years ago.

Many of the capabilities of that facility are needed in other modular construction, whether it be for government entities or other industries, as well as even in the United States.

So we're looking at expanding our geographic reach for that facility, taking advantage now of the weak Canadian dollar, maybe moving more products, manufactured products into the States.

But think of that facility is a very diverse and productive facility that can manufacture a lot of these modular units that can be used across a lot of different industries today..

So we're trying to be creative, Charles, as far as kind of how we use our assets effectively.

That's what it comes down to, whether it be kind of alternative types of businesses outside of oil and gas or different regions, whether that be in North America or even outside of North America, and these businesses when Western Canada is really on the rocks if you will.

We're trying to be creative and kind of think out of the box to just kind of find alternative uses for our assets, whether that be modular units for municipalities or doing drill work in different geographies. Again, it's just trying to be – we got these assets.

They need to be put to work and we got to be creative by that, and that's just my example..

I mean one of the largest customers that we have and one of the largest oil companies in the world asked us to go to New Zealand and we're there, we've got crews there, we've got equipment. We're doing work. And it's the things that we're doing whether it's there or it's in Australia or it's even in South America.

If we have one of our top accounts and they're looking for our expertise and our assets, then those are things that maybe in the past we wouldn't have looked towards that we are today where we still have demand, it's just not in the Western Canada market any longer. And so, we're being very aggressive across geographies as well and across markets..

Thank you, Alan..

Yeah..

Our next question is from the line of Michael Hoffman with Stifel. Please go ahead with your question..

Good morning. This is actually Brian (47:11) in for Michael today..

Okay. Hi, Brian (47:13)..

Hi, Brian (47:14)..

Hi. Thank you for taking the questions here. I just wanted to start with on the acquisition of the Vertex Bango facility.

Post that deal, where does Clean Harbors stand on re-refining collection volumes total and re-refining capacity?.

We're, I think, right about $180 million and don't hold me to that, Brian (47:40). But we collect north of $200 million plus.

As you can imagine, the oil that we're selling as a recycled fuel oil, the volume of oil that we're selling is less now, will continue to decline, but that's also driven somewhat by the market, natural gas, particularly where it's trading at now, continues to accelerate customers to move to natural gas and get away from burning recycled fuel oil.

And so, the trend will continue to be less recycled fuel oil and more towards recycling. And we think this is certainly what our customers and the government is looking to have done. And that's why I think this is going to work well for us. So we're still positive excess oil, even with this facility.

And we also have an ongoing relationship with Vertex with the swap. So we'll continue to work together with our partners, but this probably gives us at about $180 million, I think is a good number for you, Brian (48:45).

Does that sound right, Jim?.

May be a little bit higher than that..

Maybe a little higher, yeah..

Yeah..

On base oil..

Absolutely..

Well throughput, throughput actually. That's right..

That goes to base and (48:58)..

Yeah..

Okay.

And then, when you think about the savings kind of, as you touched on this volume swaps, and obviously your charge-for-oil program, I mean kind of what's built into the 2016 guidance range of the $430 million to $490 million in the sense of kind of the swing factor in savings on that part of the business? I mean to get to $60 million, if you will, on that I'm guessing you're talking about close to $0.25 to $0.30 of savings.

Can you give some color on how kind of that might split down and between the different places?.

You're talking just that particular acquisition itself or....

Well, that -- I mean obviously, your transportation savings will be there from the swaps, but also when you think about getting to $60 million in adjusted EBITDA for the Kleen Performance Products, where does the other savings come from?.

Yeah. It comes from the transportation savings that Alan's talking about in the swaps, but also through our continuing down the path on stop fees and charge-for-oil. I mean we do have kind of increases during the course of the year as we continue to gain traction in that program.

And so that's our goal, is to go from kind of where we are now in the low singles, kind of up our way through the course of the year to kind of drive that type of profitability. That's really just a function of the environment, the market and our ability to try to manage spreads..

Yeah, and our over the road transportation cost is in excess of $150 million across the business.

So obviously, the expansion and use of our rail -- we've got a large rail fleet of 1,800 railcars now, both dry and bulk liquid, and I think we're really tackling the transportation cost in the routing side of things, because that continues to be an opportunity for us even in light of all the hard work that the team has done on the front end collection side and on the stop fee side, there is still a lot of opportunities to do a better job of routing, and like I said, performing swaps and – because we all – we're all in this together, as an industry, trying to figure out at these catastrophic levels, quite frankly in base oil, how to survive this downturn..

Yeah..

So we're working together..

And how to be more creative, and our goal is get to kind of double-digit charge-for-oil by the end of the year..

Okay. And then if I can just sneak one last one in. On the emergency response, clearly, that's coming out.

What's baked into that $430 million to $490 million guidance on emergency response? Is that zero or is there some level of expectation that you'll be doing some work?.

Zero at this time, Brian (51:40)..

Right. Thanks. I'll get back in the queue..

Thank you. Our next question is from the line of Brian Chin with Bank of America Merrill Lynch. Please go ahead with your questions. Please, Mr. Chin, your line is open for questions..

Maybe we lost him..

Appears we may have lost Brian. Our next question will come from the line of Sean Hannan with Needham & Company. Please go ahead with your question..

Yes. Good morning. Thanks for taking my questions. I have a few of them here this morning.

So first, in Technical Services, just as a sanity check, is it possible somehow that there is any lost share for some of the volumes that would come to any of your disposal?.

One of our customers on the broker side of our business did an acquisition and acquired, again, one of our other brokers. And through that acquisition, we raised our prices quite frankly. And some of that business was lost and I think I would say purposely lost.

So yes, we did lose some volume on our – as everyone knows, we have a solid $100 million amount of business that comes to us through third-party companies, competitors/customers. And we have a strong sales effort around those accounts.

But from time to time, as changes take place, consolidation takes place, things change, we have lost some business last year in that. And I would say that was probably the only significant loss of business last year, Sean..

Okay. That's helpful.

And then, in terms of landfills and being able to drive large projects volume through there, I'm just trying to understand this a little bit better, because when I think about the general project nature for, I mean, the services you provide, we already do see and have seen some disruption delays in volumes that otherwise come to you.

So just trying to understand how you may have some control in being able to drive incremental volumes into those landfills from those project wins that even though they're enhanced, is there anything that actually gives confidence that we can push that? Thanks..

Sure. Well. And certainly, I think as everyone who has any large remediation project is doing everything they can to try to come up with alternative technologies then to dig out material and haul it, and put it into a landfill in many respects, the regulations drive the disposition of the waste.

And so, whether it's the certain codes that they carry under RCRA or the certain best available treatment technologies under RCRA, we know that that is where the material, ultimately, is going to go either to an incinerator or a Subtitle C landfill.

I think what we're trying to do is really to be as efficient and creative as possible to reach across all markets in the U.S. and to really look at our landfills on a U.S. basis rather than regional basis.

And so, as we think about the impacts to our North Dakota landfill, for example, we're looking at how do we now look outside of that region to drive more volume into that particular facility. We're expanding one of our landfills in Texas.

We still see some good growth opportunities in that market, particularly with the Permian still going pretty strong. Our California landfill, I think, again, last year, hit its cap.

So I don't feel even with the slowdown in that market, we can offset that and I think, there're some other nice business in that market, maybe even a little bit higher price, quite frankly, we might not hit our cap, but I think overall, we feel very good about our landfill there. So I think we've got some good strategies.

I think one important thing is we've finalized our 25-year expansion, in our Sarnia Ontario landfill. And so that site now got its permit behind it, and we had really limited how much material was going into that facility.

And so, as we move into this year and next year, we're certainly hoping that, particularly in Ontario, but throughout Canada, we could continue to grow volumes in that landfill. And at the same time, two other landfills, one in Western New York and another one in Ontario, will be closing.

And so, we think we're really well-positioned with that site now, that we have our new permit, we can get some increased volume at that location. So I hope that gives you a little bit of color, Sean..

Okay, that's helpful. Two additional quick questions here if I may.

PFO – or I'm sorry charge-for-oil, is it possible – did I miss where your average is at this point? And the reason I ask is some of the industry conversations I had suggest some of your smaller competitors, at this point, are in the mid-teens, some of them are even up to charging nearly $0.30 a gallon.

So just trying to understand given your collection industry leadership, your ability to drive more aggressive results in that metrics? Thanks..

Sure. So as we look at the 190-plus locations that we service customers from, you can imagine that each pricing and economics is different at that local level, and certainly, at that small regional level. And so, our pricing and how we approach each market certainly has a lot to do with our transportation costs.

It has a lot to do with what particular outlets might be available to us in a market that may be so costly to move into one of our plants that we need to do a swap with somebody or we need to sell it as our recycled fuel oil.

So I would say that we have done a really good job of understanding those local markets and pricing appropriately into each one of those. And I think in many respects, I think our competitors are doing the same.

So that's probably one of the reasons why you're getting these different price points from some of the smaller gatherers out there that, quite frankly, we do business with. We take their oil. In some cases, we actually still pay for their oil if they're right in the greater Chicago market, let's say, for example, so.

But I would just say that, in general, we're in a charge-for-oil market right now, and top of that having a stop-fee to provide the service and that will probably continue to accelerate more now that we see crude being stubborn at $0.30 and base oil going down again another $0.15..

Okay.

So not willing to comment though on where your average collection fee is?.

Jim, I don't know if we have done that. Go ahead..

(59:46) It is definitely – the average definitely crosses into CFO, right. I mean that's where we're at. We have some PFO with more charge-for-oils and pay-for-oils. And we'll see that because we did this so late last year that you will see that really ramp up in 2016 for charge-for-oil.

But we definitely move cast, we went from PFO, that's down to zero, now we're in the average of CFO. Yeah..

Okay.

Last question here on the cost reductions, the $50 million for 2016, is that $50 million fully realized in 2016, explicitly within the income statement or is that $50 million related to cost actions perhaps not fully realized?.

So I'll answer this. Sean, it is fully realized within the P&L in 2016 between kind of cost of revenue and SG&A. So that is the net number if you're looking at that way..

Okay.

And so, then the $100 million for 2017 is Jan 1 out of the gate, as a run rate?.

So when you think about it, Sean, just to give you some clarity, when we look at our internal numbers, we're forecasting kind of much higher than the range we've given you, right? So we're trying to make sure that we kind of deliver on these numbers. So our cost actions are much higher than that.

We just – we want to make sure we've – the abundance of caution kind of give us kind of a lower number.

So I just – we're trying to give you answers, but just taking a step back and looking at it from an internal standpoint, our budgeted numbers are kind of much higher EBITDA, more cost reductions and more aggressive than what's actually potentially shown here..

That's fine.

I guess what I was just trying to understand now is, when you hit Jan 1, are you at least at that $100 million run rate?.

Absolutely. Yes..

Okay. Great. Thanks so much for your patience for all my questions..

No problem..

Thank you. The next question is from the line of Barbara Noverini with Morningstar. Please go ahead with your questions..

Hey, good morning everyone..

Good morning..

In Technical services, you discussed the declines and the value of various metals you recycle.

Can you please remind us what percent of Tech revenue sales come from recycled materials? And maybe talk about the expectations you've built in for recycling in your forecast for Tech Services for 2016?.

Yeah, it's probably less than $100 million, Jim..

Probably at least $100 million maybe – it's definitely a little bit more, but of course, this excludes all of the Safety-Kleen recycling that we do of waste oil and all that. But if you look at just kind of like where legacy Clean Harbors is, it's a little bit north of $100 million..

Yeah, I think overall, if I remember, and again, this is not an exact number, but overall, about $700 million of our revenues were from selling products that were recycled like selling base oil. This is going back a couple of years.

And as you can imagine, there wasn't one of those that is probably not at half that price, whether it's recycled fuel oil, base oil, blended oil or any of the other commodities like catalyst, copper, metals and what have you.

So Barbara, it's a pretty substantial number, because that is a big part of what we do is collect a lot of hazardous waste and recycle it for reuse..

And just to give a little color on that, for 2015, what we break out between service revenues and product revenues, and in 2015, we're at a little over $530 million in product sales. That includes obviously most of the Safety-Kleen....

Yeah..

And also the regular all the other stuff that you mentioned before, Alan..

Yeah..

And Barbara, as we look into 2016 for budgetary purposes, we kept those metals flat from wherever we were as at the end of the year. We didn't assume an upside or downside in those metal prices..

Got it. Thanks for that detail..

Okay..

Thank you. At this time, that concludes our Q&A session. I will turn the line back to Alan McKim for closing remarks..

Okay. Thanks for joining us today. We really appreciate your questions. The team is presenting at several upcoming conferences and getting out of the road meeting with investors. And so, we look forward to speaking with many of you in the weeks ahead. Have a great day..

Thank you. This concludes today's conference. Thank you for your participation and you may now disconnect your lines at this time..